Mathematics for IBA

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K 653

Lectu re 12
Today
Theory: Chapter 5: sections 5.1 (except p10B) and 5.2.3

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ln economics we are often interested in the maximum or minimum value of a function.

Today we focus on extrema for functions of one variable.

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 Monotonicity
Definition A function A@) ts tncreast on an interval if for all r in the interval and
Lr > 0 it holds that
a@fAr) >a@)
Definition A function A@) is decreasing on an interval if for all r in the interval and
A,r > 0 it holds that
a@ * Ar) a y(").
Definition A function A@) is monotonic on an interval if it is either increasin gor
decreasin on the interval.

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decreasin rncreastng first increasing
monoton ic monoton ic then decreasing
then increasing
l(r*ar)'g(rl not monotonic
Note: a constant function is both increasin a nd decrea sing on its doma in.
What is the relation between a function being increasing/decreasing and its derivative?
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 Monotonicity and the first order derivative

v'(*) > o n an interval, then the function a@) is increasing on this interval.

lf yt(r) ( 0 on an interval, then the function A@) is decreasing on this interval.

Example (i ncreasi ng/decreasi ng)

Consider the function A@) : tr3 - 27r + 7. Where is y(r) increasing/decreasing?
Ct.c.c,ts Lrurl b' (r) i( 7z o, { c> . : S i gr, cAc.^'

T Jol,e ?r(rr =o Sit /r c\c*.

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ad r,(t = -3 'J 6n c/*,,Yl.
r>t ,\= a V X-- - JT I

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t(y,l >
?t x 3 V X- -- -3 O6 (-* d v [-s, € )

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 Extrema of a function of one vartable
Definition A function valuef@ of a function is a minimum of the function a@) if
fo r each r in the neighborhood of c

a@) > a(").

The point p is called a minimum location of the function a@)

A function value @ of a function is a maximum of the function A@) if for each r in
the neighborhood of c
a@) < a(").
The point fl is ca lled a maxim u m location of the fu nction A @) .

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 \.y&tr) p+n{
Extrema
Bou nda extrem u m: extrem u m on the bou nda ry of the domain.
t(ct)
lnterior extremum. extremum that is not on the bounda ry of the domain. a(q),J(c."l
Y IUCS rrn c.r; p.in tS. ( b, tr r = o ) b (cr) ,VL%I
a
Nature extremum: mtnrmum or maxrmum.

minimum'. minimal function value on the full domain.

--Global
Local minimum: minimal fu nction va lue in the neigh borhood .
vLt-| , U (,2\
Global maximum'. maximal function value on the full domain. g (crr t
Local maximum: maximal function value in the neighborhood. 6c",,, V Gr)

Relation between interior extremum location and the value of the derivative?
,dt( c ) o (sto.. - o)

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 4r1i- a
First-order condition for an extremum (
lrc
lf a function A@) has an interior extremum in c, then A'k) - 0.

Defin ition A point r such that A'@) - 0 is called a stationary oint of the function
a@)

Note that

t\ not every stati onary point is an extremum location.

(t-a,rir,r.qr) poi''_td *rL Wr,.

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lnterior extrema
Theorem Assume that c is a stationary point of A@). lt holds that
if yt(r) <0foreach r<-cintheneighborhood of cand A'@) >0foreach rlcin
the neighborhood of c, then ak) is a minimum;
if yt(r) >0foreach r<-cintheneighborhood of cand a'@) <0foreach r) cin
the neighborhood of c, then ak) is a maximum.
Corresponding sign charts of A'@),

(rr
6'(t) b
C C

c is a minimum location c is a maximum location

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 Boundary extrema (
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t
For most functions, every boundary point is an extremum location.

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 Finding extrema
To find all extrema of a function a@) you can follow the following steps:
1. Determine all boundary points. (d,rrn,a.r, )
2. Solve A'@) - 0 and determine all stationary points.
3. Make a sign chart of A'@).
4a. Check for each stationary point (SP) *hether it is a minimum or maximum
tl location or neither one.
4b. Check for each boundary point (BP) whether it is a minimum or maximum
location.
5, Determine the maxima and minima by computing the corresponding function
values of the minimum and maximum locations found in 4a. and 4b.

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 Example
Determine the extrema of the function A@) : 13 - 27r + 7, (-5 < r <-5). lndtate
for each extremum the location, the nature and the function value.

L B o.r^ o\org g .T+( r x = -r t

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Example
Determine the extrema of the function A@) : tr3.

lf a stationary point is no extremum location, then we call such a point a saddle point.

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 Alternative formulation of the monotonicity condition for an extremum r\/
SuppoSecisthe@stationarypointofafunctiona@)onanintervalandaisa
point to the left of c and b is a poin t to the ri ht of c. lt holds that

g (ol
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g Cel cbr
Example (alternative condition extremum) t Or
b

Determine all extrema (location, value, nature) of the function a@): 12 - 5r + 4.

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+ f14 l,'r /^*.. I u r,,wt, .,q 1
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Applications
Optimal order quantity in economic order quantity (EOQ) model
lngred ients:
-
p v( chca. Pf ;c(.

Goal: determine order size q such that sum of total order and holdin g costs is m in ima I

(optimal ord er quant ity). t

h t .l
hol at,r^ S arrsJ
'foba.t oJ 5k = + Of 6rU C,2ltra + P.^t c/t r. 1-or l-|
a4 + '

a:P v= &' l.
h4
t Ore t 6n'Q- ! O r&tr d, T-C(&t ? !.c- +
P'A +a
t
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i
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a- A
2 t

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a uestions:

,-

Lv- l- I

I
h^o

TcC+l ' *-.cr ?L + ).'L .h Lc L-, + got F lhL.

rc (I.)
rrhlrrr..tr .

o. TC'(t) = o (D 1' tt Clrc tG

c)
1.a-{l+ ff TC,Q)
r=r -d-c1:" **.h -o
---F?-

2'JF z-J+
(fii
Je"t.-E-
(-J dc
Frr A
t
z z h<
3
1:
t acdt
TC'({Jr t
)=
- -

Tc'(zJF
r h>
r=) a12 ): I
h lr 8

1rJ Ao-
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-
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ta
v7 Irr
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Example
A shop sells pens. The fixed demand in this shop is 250 pens per year. The fixed
order costs are equal to 50 cents per order and the annual holding costs are equal to
10 cents.
Determine the optimal order quantity of this shop.
tJ. krr,ow : c = o'to
( gct g.-ar
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[ =. O. lrr (pu tr.' )
2. O.fo . 2.St2 1f,o
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O gun'ror q$* ( j*a1n6k) a \ a. lEr - ql 2,Tlo

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